The Ups and Downs of Open Book Management

Mar 19, 2024 | Growth Tips, Management, Planning, Strategy

Every company that implements Open Book Management (OBM) faces an initial path of uncertainty, doubt and discovery.

There is often underlying skepticisim that you must work though to get buy-in.

It takes a long-term commitment to make it work.

But even after achieving success, you can still face economic setbacks which becomes a challenge to naviagte.

Five Tips

For that reason, I am sharing 5 examples/tips from companies that have dedicated themselves to implementing OBM and Profit Sharing.

Profit Sharing Tips & Challenges

1. Frequent Reviews:

Our long-time client Drost (MI) has done well with profit sharing, showing improved margins year over year.

One of their secrets, they hold twice monthly open book reviews.

This means 24 meetings a year to make sure employees understand the numbers, and the actions they need to take.

2. Start Low and slow:

Our Canadian client, Whispering Pines Landscaping, has worked on this for years.

Their profitability started small and grew each subsequent year.

One of their secrets, they set the profit sharing bar low, to make sure that trust was built and payouts started happening early on.

Another secret, They update the profit pool throughout the year, so each employee understands how it translates to their wallet at year end.

3. Build Trust:

John Puryear, owner of Puryear Farms (TN), a long time peer group member, has proved that profit sharing is possible and effective with a mixed immigrant workforce.

He built trust over the years with transparency and objectivity.

Everyone on his team understands the system he uses to calculate profit sharing, and how they are graded.

There is no guessing.

4. Keep Your Team Informed.

Client X shared with us during a recent Leader’s Edge peer group meeting, that his Q1 results were not keeping up with budget.

His revenue (billable hours) was off to a weak start.

It looked unlikely that he would hit the year end goals they set out for profit sharing.

Do you share the bad news?

Hence the question arose: Do you share the bad news with your team so early in the season? Will it deflate their energy?

After seeking counsel from our peer group, client X decided to share the facts with his team.

He would have a frank discussion, and allow the team to decide next steps.

What happens when billable hours are off?

One option we gave client X:

When billable hours are off, you can determine if there is room to raise “throughput” (profit per hour) for the work you are selling/producing, in order to counter balance the reduced billable hours.

5. Treat Business like a Game.

We work with many contractors who have gamified their business.

There is a whole book written about this, called The Great Game Of Business

Interesting, the host of our upcoming Summer Growth Summit, Ryan Lawn & Tree (Kansas City, KS) follows this approach to profit sharing.

They use about 80% of the program.

When you attend our Summit you can earn how they have adapted it to their business.

Your Challenge: All employees want to know “what’s in it for me”?

It’s not enough to promise a payout. You have to show employees what they control, and what KPI’s they can influence.

Do this in group meetings and one on one.

I believe in the benefits of Open Book Management, but every company does it differently, so find the path you are comfortable with and can stick with year over year.

Regards, Jeffrey Scott

P.S. Join us at our Summer Growth Summit, learn more about the Great Game of Business, and save 400 per ticket when you sign up next month before April 18th.